UnumProvident Settles Claims Probe
The nation’s largest disability insurer will take a $75-million charge against profit to pay for a sweeping settlement with California insurance regulators and resume benefit payments to thousands of disgruntled customers in the state and elsewhere.
The charge announced Monday by UnumProvident Corp. raised to more than $200 million the amount the Chattanooga, Tenn.-based company has devoted to settling regulators’ complaints that the firm systematically denied customers’ claims in an effort to improve its finances.
Word of the charge came as California Insurance Commissioner John Garamendi announced a settlement with the company that required it to pay an $8-million civil penalty -- the largest ever levied by Garamendi’s agency -- review as many as 26,000 California cases dating to 1997 and change the policies it sells in the state to add greater consumer protections.
Garamendi told separate news conferences in Los Angeles and San Francisco that he intended to impose similar policy provisions on all companies selling disability insurance in the state, a move that analysts said could substantially change the industry. Among the policy changes: use of a definition of “total disability” that favors claimants and removal of “discretionary authority” language that gives companies sweeping power to interpret their own policies and limits claimants’ ability to successfully sue their insurers.
The California settlement “could have broad implications for the company and potentially for the industry,” said Moody’s Investors Service analyst Ann Perry.
Writing about the definition change, A.M. Best analysts Carl L. Auston and Kenneth Frino said, “This change will impact all individual and group long-term disability income carriers that sell business in California by causing higher-than-anticipated loss ratios and may temporarily reduce the availability of coverage.”
In addition to agreeing to reopen the California cases, UnumProvident said it would notify about 50,000 non-California claimants whom it had not previously contacted that it was willing to review their cases as well. The latest California and non-California cases raise to more than 300,000 the number whose claims the firm has agreed to reopen.
Disability insurance -- now carried by more than 50 million Americans -- is intended to replace generally half or more of a person’s wages if he or she is unable to work because of illness or injury. UnumProvident is by far the nation’s largest disability insurer, with half the U.S. market.
Based on the California settlement and related matters, company executives said UnumProvident would take a charge of $75 million pretax and $51.6 million, or 16 cents a share, after-tax. The new charge comes atop a $127-million charge that the company took last fall to pay for an earlier settlement with insurance regulators in 48 of the 50 states. Only California and Montana were holdouts from that settlement.
UnumProvident shares rose 10 cents to $20.60 on Monday.
